5 expensive mistakes of the unadvised

5 expensive mistakes of the unadvised

 

Sometimes helping people avoid expensive mistakes can be as valuable as setting you on the right path to achieving your goals.

People will sometimes say they can’t afford financial advice. But for many, not having advice can be twice as expensive.

 

Not only can we guide you along the road to achieving your financial goals but we can also help you avoid the potholes on the way.

Some common mistakes made by clients who haven’t received financial advice and ways on how we demonstrate our value in our conversations with you.

1. Too little too late

Most people only go through retirement once in your lives. Many financial planners go through it on a weekly basis. Too often, planners see what happens when people face retirement with too little money to sustain a comfortable retirement and too little time to make up the deficit.

 

Even clients that have sought advice earlier in life are sometimes reluctant to commit to a plan to reach your retirement goals. They cite mortgages, renovations, overseas travel, school fees and not planning to stop working as reasons to put off seriously investing in your long-term future.

 Our value is in education and discipline.

 

A nest egg will give you the freedom to choose to stop working or slow down when they choose.

 

The government has deliberately set up a system that favours those who start early and stay on track.

The combination of compound interest and Government incentives favour the tortoise over the hare.

 Our role then is to deliver a structure and strategy to give you the best chance of achieving your goals.

2. Pay unnecessary taxes and fees

People generally don’t want to pay more tax than they need to. But they quite often do.

Taxes can act as a drag on our clients’ efforts to achieve your financial goals. This is where our technical expertise and relationships with specialist tax accountant can make a huge difference to clients. Working with the accountant, we can help clients to identify taxes and understand your options.

Here are three taxes we speak to our clients about:

• 15% tax on earnings in super for clients over 55
• Excess contributions tax for superannuation payments
• Potential salary sacrifice contributions taken as income
• Capital gains tax on short-term investments

Paying more fees than is necessary can have a similar effect to the above taxes. Some examples to speak to clients about include:

• administration fees on multiple super funds
• self managed super funds with low balances
• older-style “fee-guzzling” investment products
• complex investment schemes that add little value and are not understood by the client

3. Fall for investment fads

Investing can be very emotional. Envy and greed often tempt clients to chase hot asset classes, sharemarket sectors, managed funds or property schemes.

 History shows that this rarely pays over the long term. Tech stocks, speculative mining stocks and highly leveraged property investments have all caused financial hardship for a large number of retail investors.

 

As a financial adviser, we can provide discipline for our clients to take the emotion out of investing by helping you understand your attitude to risk and educating you on a strategic investment framework that is appropriately diversified and tailored to your individual risk appetite.

 And by maintaining an ongoing service relationship, we help you maintain a long-term investment focus, practice dollar cost averaging and rebalance your portfolio in line with your strategy.

4. It won’t happen to me
Clients are often either unaware or unwilling to admit that risk exists in your lives. We can help you articulate by developing a contingency plan (sometime called a “plan B”).

 

The contingency plan includes an inventory of the risks faced by clients and the way they are currently managed.

 We can then work together to identify any gaps in your plan B and show you your options in relation to managing those risks.

5. Fail to plan

As the old saying goes, “if we fail to plan, we plan to fail”.

 Clients are very unlikely to achieve your major life goals, if they fail to first articulate those goals and secondly put a framework in place to achieve you.

 

This is where we step in. Goals often lie under the surface in a person’s sub-conscious.

 

 Our value is helping people to identify and articulate these goals and then to help you visualise what success looks like.

 

If your goal is to see the world, ask you to visualise stepping on the plane.

  If your goal is to pay off your mortgage, ask you to visualise what it will feel like to make your last payment.

Once our client’s have the vision, they will be far more motivated to achieve those goals.

 We can you help you on the best strategies to achieve those goals. Call today on 07 3848 1088 or email

 

John McAuliffe

Are you having fun & Super is a con.

Pauline asked us that question whilst enjoying great hospitality with Steve on Saturday night. 

Are you reluctant to say ‘no we are not having fun’ as that would be an admission of failure. But can we say ‘yes we are having fun’.

We suggest at the school drop off to ‘have fun’  at school when we drop them off. We hope they do.

We  suspect however that most families don’t.   Australians on average have as much wealth as anyone who has lived before .  There are 132,000 millionaire families here & surely they are having some fun.

We would suggest that they are having fun because they have no debt & are working for themselves.

This week Porter S who writes a global wealth newsletter says that is exactly what to tell your kids.

1.       to not have debt

2.       to be self employed. [Steve is self employed & having fun as he has a passion for his work]

You are welcome to email us for that advice that Porter provided. He argues ‘they could be a millionaire by the age of 40’.

When we meet our PCMS* clients for the first time & every subsequent meeting we remind them that ‘they will pay back to the bank 3 times ‘at least what they borrowed. If the average Australian debt is say $400,000 then no wonder the banks are profitable. No wonder Australians have little else.

Terry aged 68 was only too happy this morning with the CBA dividends that he received & he will claim back the franking credits on the taxx that the CBA has paid next taxx return.

However too many listen to their Mums & must buy a house as they always go up. Professor Steve on Business TV this week was saying & has been for some years that ‘house prices will deflate over the next 10 years by 40%’.

More than one third of those who bought a house in 2008 now owe more than the house is worth.

Another very good reason for your kids to wait .

We have  always suggested that if you are to buy a house & yes families need & deserve a home

That

1.       Will you have 30% deposit so as you have the better bank loan & maybe the mortgage is cheaper than the rent.

2.       is this your last home as costs such as stamp duty & commissions are a year’s savings?.

3.       Where are you sending the children to school?

If not then your kids should wait. Porter suggested & we have previously harped on it that there are too many who marry then buy a house on too little, then have a family which means 1 income with many mouths & then divorce. Great for the Bottom Feeders.

No wonder no fun.

On Sunday we were discussing Harry Potter with another Mum who wanted  a pool. Another pet hate when there is a council pool which produces Olympians only 1 K away.  $30,000 which would be better off in the debt & not paying back 90,000+.

When we commented that we don’t expect the government to allow lump sums to pay off the mortgage on retirement this Mum she articulated ‘Super is a con’.

We are in agreement with her when we all feel that Bill Moth & Precious Penny & Co can’t keep their hands out of your 1 trillion cookie jar. All governments & they are all the same must change this age of entitlement & reduce their footprint over us.

We are also in agreement with the CPA, the government’s other compliance officers, who similarly suggest ‘the nation is headed for a retirement savings "disaster" and calls on the government to examine placing limits on access to lump-sum payments upon retirement.’

You may not be able to pay off the mortgage, buy the new car, take that canal trip or the cruise.

It is all of these factors which are out of one’s control which provide that feeling of no fun.

There is fun when you feel more in control. You are more in control when the what ifs can be answered.

 As we discussed with Archie recently ‘what if the banking system goes or your are redundant today’. Do you have cash under the mattress for that?

You are more in control when you have no debt but that takes a desire & taxx minimising & discipline to achieve that.

If you are not having fun then you are welcome to call on 07 3848 1088 or email to progress to fun.

Our PCMS* & Debt Zapper work if you want them to.

Mark is happier  today when he knows that if he comes off his bike that the family is cared for & the family doesn’t have to rely on the widow’s pension which is only for 14 weeks.

Check out our website for your own  estimate of your needs. Your super won’t have a million cover & last after retirement.

You may have more fun when you have a little nest egg outside the super & the house as both are illiquid & can’t be accessed. We have some ideas on that portfolio which might include ‘fondling gold’ this year.  We have model portfolios for your attitude to risk.

What if as is forecast that interest rates drop to 2%. Yes great for those with a mortgage but poor for Terry who is living off his savings income. However as a retired adviser he bought in to CBA @ $25. You may not want to do so at the current CBA $57.

As we suggested to Cheryl yesterday everyone has their own financial problem & hence they require their tailored solution . This can mean more fun for you. We await postcards from Cheryl who is off to China & Thomas & Allison who are doing a 49 day cruise around South America. They are having fun as no debt & income from investments. Neither are relying on Big government.

It is exactly 2 years since we earned our Jameson tasting certificate. It is time for more fun.

You are welcome to call today on 07 3848 1088 or email or visit our websites

 

John McAuliffe

Suppose your granny is in the 1%

Suppose your granny is in the 1%

What occurs on Boxing day every year is what is known in the aged care industry as ‘Granny Dumping’ when the family realises that Granny is no longer independent.

Yep there are about 221,000 residents in aged care & of those about a quarter are aged under 65.

I.e. It might not be  Granny or Pop but maybe Molly falling of a ladder or your son king hit from behind or a car accident or a birth incident.  

As the family has gathered over Christmas there is  the realization that something needs to be actioned. However dropping her off at the closest aged care place is not as simple as maybe dropping of the family poodle at the RSPCA before going away on holiday.

As government is nearly always involved then there are usually four steps & a system to follow & paperwork at each step. Then there are technical terms that you need to comprehend.

1.       Before entering an aged care facility your health must be assessed to decide which level of care is appropriate. The assessment can be performed by any doctor, nurse or social worker who is a member of an Aged Care Assessment Team (ACAT).

1: A2.     There are two types of residential aged care facility – hostels (‘low level care’) and

nursing homes (‘high level care’) which is why the health assessment.

The main difference between hostels and nursing homes is the  level of care provided. Hostels provide personal care, accommodation and some level of nursing care, whilst nursing homes provide 24-hour nursing care and accommodation.

 3.       On entry to a facility, you will be required to pay depending on the type either

a.       an accommodation bond (a once only lump sum) or

b.      a daily  accommodation charge (ongoing).

 4.       Regardless of what type of facility you choose there will also be

a.       a basic daily fee to pay and

b.      there may be a ‘daily income-tested fee’.

 Some facilities offer you a higher level of service or a higher standard of accommodation or food. If you have chosen a higher level of services there will also be

c.       An ‘extra service’ fees payable.

  As we asked Sheila recently if she had to

·         which facility does she want to go to.

·         What upfront payment will she need to pay?

·         How much will we pay for ongoing care?

·         What happens to the pension?

[This is particularly relevant if the house is sold as it could be an asset that pays an income.]

·         Do we keep the home or should we sell it.

[there are conditions & exemptions as you would expect]

·         What does Granny leave in her estate?

·         Do we pass the hat around for her in the meantime?

·         And plenty more.

·         Do you want to pay the minimum daily fees or do you want the maximum care?

[ be warned as the facility does NOT need to accept you]

 

If Granny is in the top 1% financially then she most likely  have done her estate planning. However 60% haven’t made wills & Enduring Powers of Attorney & other powers are usually sensible.

As there are many variables then there is no single solution  for each Granny or Pop.

The easiest solution may not be the ideal as there are consequences affecting the pension & the costs vary accordingly.

 The ideal is frequently to retain the health card & the full pension. Sheila also deserves the best care.

We also comment on those unfortunate 25% many who have an accident that it can take years to move through the court system & then the solicitor might take 30% of the lump sum awarded.

Hence some tailored income protection up to 75% of your income is preferable to what the government offers in the meantime.

 

Welcome to call on 07 3848 1088 or email or visit our websites & be warned over Christmas there is up to a 3 month wait  for ACAT.

  

John McAuliffe

Matt states that Greece & Spain will default

Yes Matt is a fund manager of 2.3Billion who occasionally leaves his four simultaneous computer screens to appear on business TV or face financial advisers.

There was plenty to take out of his presentation but as always we are interested in the future & so some notes working backwards from his answers is a way to summarise his case.

I.e. the last 30 years is no guide to the next 10 years.

So expect less capital gains & focus on risk & income.

·         Earnings growth of companies to be below average

·         Asia to be the global growth driver

·         Interest rates to rise

·         The main driver of returns to be income growth

·         Lowest risk debt is corporate & not government

·         Preferred risk hedge is income producing assets & not US bonds

·         Asset exposure to emphasis quality & not growth

·         The Australian $ will remain above parity.

Currently the markets [share]have priced in all the bad news & are the lowest in 20 years.

Matt did have some great slides which included comparing returns of the 5 major asset classes over various periods. [which we have for you to view]

The key point out of those & hence wealth creating was reinvesting the income back into the class & allowing compound interest to work. This had a dramatic long term impact.

And the winner was  over any 20 year period ,you guessed it, shares with a multiple of 160 times original as they are exposed to the real economy. [Property was 44times & cash 25 times].

Matt also showed a slide comparing previous similar cycles & where we are on the current one.

As Peter Q has also shown us we are ‘grinding’ towards the big upswing in the markets.

The markets are going to be dominated by long term trends according to Matt. i.e.

·         hard commodities down as we see this week although we are a ‘gold fondler’.

·         Emergence of income investing as a source of wealth creation

·         Downward earnings & valuations in advanced economies.

·         An evolution in risk return dynamics

Matt comments ‘that it wont be the smartest or fittest investor that benefits from the new environment but the investor that who is most adaptable to change’.

We had PIMCO [huge global bond manager] asking ‘ Will action follow words in Europe?

They suggested 6 key areas that Europe needs to focus on and

This is a challenging list, especially for the next few weeks; and it requires the type of political leadership and coordination that, hitherto, has tended to elude the eurozone.

When we read that SMSP trustees are putting their retirement funds into residential houses or Australian property & cash we understand that anything else is too hard.

However as Matt clearly showed its income that creates wealth & the net rental return from such property is 1% from all the observations we have made. Matt mentioned an income  fund that was returning 7% & there are plenty of such income funds.

 Debbie told us the worst  decision & experience she made was a rental property. We  as a baby boomer are well aware that contempories are retiring & finding the negative cashflow from such properties too much. They are selling which isn’t helping the housing market as we know.

We observe today on our Linkedin sites that an ex colleague is selling houses in USA. An ex Coalition leader has a trust for similar. Greece & Spain maybe buys after their default. These maybe better options but who is going to look after them for you?

Although  the bus driver asked us if we had a seniors card on returning from Matt’s talk we have the same challenges as we expect to Bat as long as our late ‘Auntie’ Freda i.e. to 95. Wealth creation is a challenge & evolutionary & for those who live & breathe the markets.

Of course getting  to age 95 needs Brilliant health & at 95 we might need Aged Care advice.

 We have solutions for both challenges.

As the European meddlers return from holidays &the looming ‘fiscal cliff’ & as the Volatility index VIX is very low then as Richie says D for defence could be the best strategy for the short term.

However Cash or rental property won’t  achieve the 1,000,000 Capital we need outside the house.

 Mark suggested that they could do better budgeting. When he also pays 35,000 in taxx then there must be a better way as high incomes also need tuning.

You are welcome to call on 07 3848 1088 or email or visit our websites  as we have helped tune finances for 28 years. We do have  for you to view Matt’s presentation but we admit we are not Matt.

 

John McAuliffe

 

 

If your Mum had to move into an aged care facility today then what is the solution?

If your Mum had to move into an aged care facility today then what is the solution?

 Yes it generally or frequently happens before you are ready.  The instinctive reaction to sell the house may not be the only solution to the funding requirement.

 Norman  advised us whilst watching the AB win that ‘the RE agent cost 18,000’. I.e. not selling the home is a big saving itself.

Questions that you might ask yourself include.

·         How will the accommodation bond or charge be funded?

·         How much are the ongoing costs & how will they be funded?

·         Is the family home to be retained or sold.

o   [We were advised by Garry many years ago that ‘the best place to buy a property was thru the Public Trustee’ as the children wanted their share fast & were quite prepared to drop the price]

·         Can the family home be rented out?

·         Are investments to be sold ?

·         Is a reverse mortgage appropriate?

·         Can the family contribute to the Costs?

·         Is it important to keep the pension benefits & are there strategies to keep the benefit?

·         What are the tax implications when moving into aged care?

·         How important is it to preserve  current assets?

·         Has a will & Powers of Attorney been established & maybe reviewed.

·         Has a superannuation or pension death benefit nomination been established or reviewed?

·         Are there strategies for funding care now & in the future?

Yes over one  million older Australians are currently in some form of aged Care or support each year & this number is only growing bigger.

These costs can be very high when moving into & residing in an aged care facility & it is smart & wise to

·         Minimise these costs

·         Maximise social security benefits

·         Minimise taxx

·         Choose suitable investments

·         Plan for the distribution of their estate

As there were landmark changes proposed on 20^th Aril 2012 & to be implemented on 1^st July 2014 then you need to be very aware of the solution to your problem.

If you wish to know which of the 10 core strategies maybe the relevant solution to your problem

Then we welcome your call on 07 3848 1088 or email  or contact us through our website as we might save you that $18,000.

Our aim is for you to be at least better off with our advice than if you were to DYI.

 John McAuliffe